Tax officials accuse company with a conscience of playing with words to avoid taxes on sale of its banking software

It's hard times for software giant Infosys as taxmen sent the company a notice for not paying taxes amounting to a whopping Rs 10 crore.

The enforcement wing of the state commercial tax department has also charged Infosys Technologies of misclassification in documents related to returns filed.u00a0u00a0

A copy of the notice in MiD DAY's possession reveals that Infosys has to pay tax on the sale of licence of its banking software Finacle for the period April 2005 to March 2007 under Section 52 of the KVAT Act 2003.
A senior official in the commercial tax department said that transactions related to sale of 'license to use of software' are different from 'sale of software' and have not been shown separately.

Infosys top brass refused to comment. "I'm not aware of it. I don't know anything," said T V Mohandas Pai, director, human resources, Infosys.

The taxmen slapped a four-page notice on the IT major after a visit to its campus on March 13 to verify its 'software license and service agreement' with various clients and the tax returns filed. It observed that Infosys, which licenses clients to use its banking software Finacle hadu00a0 paid 4 per cent commercial tax on the sale of software. Tax officials say it did not pay tax on the sale of its software licence, a charge Infosys's PR representative denied this afternoon.

"Since the sale of licence to use software involves transfer of property for commercial gain, it is regarded as a sale and attracts 12.5 per cent Vat," added the official.The total amount due is Rs 10 crore.

Consultants say the tax department's move is right since most IT companies use different nomenclature to avoid taxes. K Vijay Rajesh, a tax consultant said, "According to law, all packages/software including those for accounting and customised services involve transfer of property, which is regarded as sale. Infosys is liable to pay Vat on the sale of licence to use its software."